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Tried and Tested tricks of the trade
Britain's most successful small and medium-sized companies are those that "stick to the knitting" in their core market rather than introduce a constant stream of "radical" product innovation, according to an authoritative survey published today.
The findings of the Cranfield School of Management report challenge the popular "radical innovation" business theory that in order to survive and prosper companies must always have new products and services in the pipeline.
Gerard Burke, co-author of the Cranfield report with colleague Adegoke Oke, says: "The perception is that companies have to be constantly making dramatic changes to their products, services and processes in order to be successful. Our survey shows that this is not the case." In the conclusion of the school's report, the authors call on the Government to "re-direct" its current range of policy initiatives designed to help companies manage their growth and development.
These, they say, should encourage managers of "ambitious to grow" companies to focus on "incremental" innovation, and to improve their position in their existing core markets, rather than expand with new products and services too far and too fast.
Mr Burke, who runs Cranfield's business growth and development programmes, says: "We found that 88pc of the fastest-growing, and most profitable, firms achieved growth by selling more of their existing products and services to their existing market. The interesting thing is that the focus on this type of innovation, which is often popularised as 'sticking to the knitting', is actually related to an increase in turnover growth."
He adds: "This link between innovation and turnover growth has important implications for policy makers. So, too, does the finding that 'ambitious to grow' firms favour incremental rather than radical innovation." The report interviewed more than 100 ownermanagers, or managing directors, of mature mid-market businesses.
Of these, 65pc have been in existence for 10 years or more and 82pc employ up to 50 staff. If the findings are accepted, then, says Mr Burke: "It could be argued that some of the funding which the Government currently allocates for initiatives to encourage new product development and the entry to new markets could be redeployed. Some of the money could be used to support incremental innovation based on concentration, focus, deep understanding and rapid response to a core existing market."
Mr Burke also points to a previous Cranfield survey - "Business finance in today's challenging environment" (2003). This found that more than 70pc of those who were polled believed the Government's stated goal to make Britain the "the best place to start and grow a business" still had "several miles to go".
Mr Burke says that the findings of the Cranfield reports highlight "a communications problem for the Government. It has to overcome the negative view many business owners and entrepreneurs have of its role in business." Alastair Reid, partnership manager at the Department of Trade and Industry's (DTI) "Achieving best practice in your business" arm, denies that the Government's business policy initiatives concentrate too much on "radical" rather than "incremental" innovation. He says: "This does not have to be based on continually developing 'new' systems and products.
"The DTI's 'Achieving best practice in your business' activity, part of the overall support services, actively encourages companies to improve performance by adopting and integrating approaches and ideas across their business that other organisations have shown help improve productivity. For many businesses this is about simple steps that gradually lead to overall improvement."
Mr Reid adds: "Businesses testify that learning from other businesses is one of the most powerful means any organisation can adopt to achieve immediate, measurable and sustainable productivity improvements. By showing what works in other businesses, the DTI can help businesses see which approaches can work for them, and then support companies with implementation.
Stephen Alambritis of the Federation of Small Businesses, which has 185,000 members, notes: "It is true that a lot of business failures happen because firms have tried to sell too many new products and services too fast and into too many different markets. On the other hand, we are still very much a nation of entrepreneurs. Around 40pc of all new worldwide patents registered every year come from UK companies."
For further details of the Cranfield School of Management report, "Innovation types and their impact on performance in UK SMEs", and the DTI's "Achieving best practice in your business", log on to: www.telegraphbusinessclub.co.uk and visit What's Hot on the homepage and www.dti.gov.uk/bestpractice